REGULATION OF INTERNATIONAL MONEY -- Henry B. Gonzalez, (TX-20) (House of Representatives - March 16, 1992)


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Mr. GONZALEZ. Mr. Speaker, today I will continue, of course, the discussions because of the pending nature of the need of legislation to get some control, which we really never had had, none of our regulatory agencies, over this tremendous amount of international money, so-called international money that amounts to about $800 billion, even as I speak here, floating around where just a small portion of it can be highly leverageable for such things as anything from armaments procurement indirectly through other banks and such things as drug money laundering.

It is a great necessity that we must continue. We must also report what the Committee on Banking, Finance and Urban Affairs has had to confront within the last 2 years that we have been on this subject matter. There has been an absence of great concern expressed. But nevertheless that should not deter us from the fact that this Nation does not have--and it is the only Nation defined as a modern industrialized Nation that does not have--any kind of screening board or any real regulatory control over the financial and banking activities of other countries in our own.

We did amend the 1978 international banking law somewhat, this last November in the Banking Act which we approved. But it is not enough.

It was compromised, as all these have been. My personal relationship with this is that the 1978 International Banking Act, which was the first one in the history of our Congress to direct legislation, was born out of the 1975 hearings that, after a lot of pushing and shoving, I managed to get in my home district of San Antonio. And it was as a result of the startling revelations that those hearings brought out that we ended up 3 years later with the minimal, or less than minimal, 1978 International Banking Act.

In those 1975 hearings, which incidentally I will tell my colleagues if you are interested, I believe we still have some copies of the printed hearings; we can see since 1975 what now has been the big national headache, not only the banking and other financial institutions scandals as such but the dilemmas confronting our entire industry and the serious, and critical condition in which our country's financial institutions find themselves.

The fact that the perception still is not there does not decry the fact that it is.

So, today, I will report on the secret mechanism used by the Bush White House to frustrate, evade, and stifle congressional investigations of its failed Iraq policy.

I have already brought out ad infinitum for almost 2 years the lamentable use of the guarantees backed by taxpayers, of course, that led to such a

shameful and catastrophic policy, to the detriment of our national interest. The White House created this mechanism to cover up embarrassing and potentially illegal activities of persons and agencies responsible for the United States-Iraq relationship.

In April of 1991 the National Security Council's legal adviser called a high-level interagency meeting to discuss congressional investigations of Iraq policy prior to the invasion of Kuwait on August 2, 1990. The meeting was chaired by Nick Rostow, the general counsel to the National Security Council. Mr. Rostow's previous experience includes playing a key role in the White House efforts to cover up the Iran-Contra scandal, which still needs to be exposed.

Also attending was President Bush's general counsel, Boyden Gray. Other persons at the meeting included the top lawyers for the Departments of Justice, Defense, State, Treasury, Commerce, Agriculture, Energy and the CIA. Each of their agencies had received requests for information from the Congress and the lawyers who were responsible for overseeing the collection and the submission of the information to the Congress. I will refer to this high-level legal team as the `Rostow gang.'

Ostensibly, the function of the group was to review documents and information applicable to congressional requests for Iraq-related information and to establish a coordinated approach for the dissemination of that information.

A memo obtained by the committee explains the overt function of the National Security Council process as follows, and I quote:

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The NSC is providing coordination for the Administration's response to congressional document requests for Iraq-related materials. The process is intended to be a cooperative one.

While on the surface it appears the Rostow gang was created to assure cooperation with congressional investigations in relation, it gave the White House a direct hand in regulating the flow of information to the Congress, thus limiting oversight of Iraq policy.

The Rostow gang established a process whereby a congressional investigation had to hurdle a series of increasingly difficult barriers in order to obtain information from an executive branch agency.

The first step required an agency's lawyers to review and inventory all congressional requests for information, in order to determine if documents could be denied on the basis of executive privilege.

The Committee on Banking was denied certain important documents on this basis, and these document requests were on the basis of over 100 subpoenas for documents that our Committee on Banking had issued and still has outstanding.

The next hurdle involved denying documents to committees and, instead, offering briefings for Members and their staffs. In that way, an agency was able to put its own spin on its actions, without congressional staff or Members being able to question the veracity of the agency's statements.

If the congressional committee that jumped the first two hurdles still insisted on receiving documents, the next hurdle was actual access to the documents.

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Under this scheme, before an agency could provide access to its documents, it was supposed to get a clearance from the Rostow gang. The April 8 memo states, and I quote:

When access to documents may be recommended, such recommendation should be circulated to this group for a clearance.

This delay mechanism also gave the National Security Council the power to influence an agency's decision to provide access to documents.

The next hurdle in the chain discouraged committees from obtaining physical possession of Iraq-related documents, thus making it impractical to conduct an investigation. The April memo states, and I quote again:

A recommendation to provide access should be restricted to members only, subject to these conditions. No document may be retained. Notes may be taken, but should be marked for classification by the department or agency in question.

As this quote indicates, the NSC even wanted to make it difficult for Members of Congress to look at Iraq-related documents. Agency lawyers used this hurdle, limit access to documents, by insisting that investigators not retain documents that they were permitted to review on the agency's premises.

The remedy to the Rostow bank process is, of course, subpoena power, but even faced with subpoenas, the administration has refused to turn over documents to the Congress; that is, to the committee and, thereby, the Congress. We follow the rules, and the rules mandate that, before a committee can issue subpoenas, it has to have the vote of the majority, and we not only had the majority, we had a total consensus of the membership of the Committee on Banking and Urban Affairs in issuing those documents which I have referred to before. Committees that did not seek the authority to use subpoena power to conduct investigations that were directed were much less of a threat to the Rostow gang. Without subpoena power a congressional committee that jumped all the hurdles, elected to limit their access to documents, was often denied the documents it requested. Committees that voted to authorize the use of subpoenas found documents more readily available.

However in the case of the Committee on Banking, Finance and Urban Affairs, even though it had served a subpoena on one agency, important related materials are still being withheld; that is, related to the Iraq question. In addition, the Committee on Banking, Finance and Urban Affairs found that several agencies conveniently could not locate documents the committee had requested and had spelled out a full description in our subpoena.

The following quote from a Commerce Department letter sheds light on how the administration planned to cooperate with Congress. In February 1991, a letter to the top lawyer at the Commerce Department, the former Under Secretary for Export Administration, stated, and I quote, `In sum the printout provided Mr. Barnard'; Mr. Barnard happens to be chairman, the gentleman from Georgia [Mr. Barnard], of a congressional committee of the Committee on Government Operations; `is a summary reference document. The printout

is also consistent with fifth floor.' Well, that is Secretary Mosbacher's officer. That is the fifth floor is the Secretary's office floor. `Guidance and requests from both State Department and the National Security Council is that no additional information be provided that does not directly address the committee's request.'

Translating this memo, `the fifth floor,' `the National Security Council' and `State Department guidance' referred to in the letter means that, if a committee does not know that a document exists, the agency will not reveal it. The Rostow gang was established to delay congressional investigation and to permit the White House to regulate the flow of Iraq related information to Congress. In the case of the Commerce Department, the White House went beyond regulating the flow of information to Congress. The committee has gathered evidence showing the National Security involvement in a scheme to mislead the Congress about the licensing of military useful goods destined for Iraq. That is before the war. The Commerce Department has been wrongfully subjected to severe criticism for its role in the transfer of military useful technology to Iraq. The true responsibility for the transfer of United States technology to the Iraqi war machine lies with the White House and the State Department because they set technology transfer policy. The Commerce Department's role is merely to carry out the policies established by the White House and the State Department. As with the CCC--the Commodity Credit Corporation--and the Eximbank--the Export-Import Bank--programs, the National Security Council and the State Department viewed the export licensing process as a valuable tool of diplomacy. They need U.S. high technology transfer as an inducement to gain favor with Saddam Hussein.

That explains why the NSC and members of the Rostow gang became directly involved in a scheme to mislead the Congress and the American public thereby about the military nature of United States technology transfers to Iraq.

Beginning in September 1990, the House Subcommittee on Commerce, Consumer and Monetary Affairs, chaired by my colleague, the gentleman from Georgia [Mr. Barnard], requested Iraq relate export licensing materials from the Commerce Department. The Commerce Department eventually provided export licensing information to the subcommittee, but press reports began to surface indicating that certain export information had been deleted prior to being submitted to the Congress.

In February 1991, the Commerce Department's general counsel, who happens to be a member of the Rostow gang, asked the former undersecretary of the Bureau of Export Administration, Dennis Kloske, to investigate press allegations that export licenses were deleted from Commerce Department files. In late February Mr. Kloske reported that in fact changes had been made to the export licensing information. As a result of Mr. Kloske's finding, the general counsel wrote the Commerce Department inspector general asking him to investigate the matter further.

On June 4, 1991, the Commerce Department inspector general issued reports based on its investigations. The report concludes, and I quote, `Changes were made to selected data on 66 approved export licenses to Iraq. Bureau personnel also changed permanent records, compromising the integrity of the Iraqi license records. Neither the changes to the data provided to the chairman,' that is, the gentleman from Georgia [Mr. Barnard], `nor the changes to the system data bases were adequately supported.'

May I also add that the gentleman from Georgia [Mr. Barnard] is not only the chairman of a subcommittee of the Committee on Government Operations. He is also a very illustrious member of the Committee on Banking, Finance and Urban Affairs.

The report goes on to state that it was bureau personnel that changed the export licensing records. The Kloske and inspector general investigations of the changes to the export licensing information were both seriously flawed. Both reports are silent on the issue of who ordered the changes to the exporting licenses information that was submitted to the Congress. Both reports are silent on that critical, important issue because the Commerce Department's general counsel deliberately avoided investigating the question of who was responsible for ordering the changes to the licensing data.

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Could the changes have been ordered by the National Security staff? Well, despite the availability of evidence pointing in that direction, neither investigation was permitted to pursue that possibility. The Banking Committee has been informed by administration officials that the NSC legal staff went beyond reviewing the Commerce Department documents that were to be forwarded to Mr. Barnard's subcommittee, and NSC staff lawyers actually took physical possession of various Commerce Department documents. On top of that, the Commerce Department lawyers did not prepare a control list for the documents so it could keep track of which licensing records they had supplied to the NSC.

The committee has also been informed that prior to the submission of the export licensing records to the Congress, the NSC staff had numerous contacts with the General Counsel of the Commerce Department as well as the general counsel of the BXA, the export licensing bureau.

Given that the NSC was instrumental in setting the export policy toward Iraq, it had a strong political motive to mislead the Congress as to the military nature of goods sent to Iraq. It did not want the public to know that the White House had provided aid to the Iraqi war machine.

Placed in that perspective, the fact that the NSC actually took physical control of Commerce Department documents and had numerous contacts with the Commerce Department lawyers, serious questions should be raised about whether or not the NSC altered the Commerce Department records or, more likely, effectively ordered the changes to the records. After all, it is highly unlikely that numerous Commerce Department bureaucrats would risk breaking the law and losing their jobs over a policy that they were not responsible for setting.

Another important question relates to the fact that the Commerce Department lawyer that limited the scope of the investigations also is a member of the Rostow gang. It is certainly plausible to think that the NSC or others ordered him or pressured him into limiting the scope of the Commerce Department's investigations so that attention would not focus on the NSC staff.

In addition, the circumstances surrounding Mr. Kloske's departure from the Commerce Department also raises suspicions. It was reported in the press that Mr. Kloske was forced out of his post at the Commerce Department because of derogatory comments he had made about the administration's export policy toward Iraq. Could the National Security Council have ordered him or pressured him into authorizing the changes to the export licensing information? That is a good question, and it should be asked. The question and its asking should be sustained.

On July 10, 1991, Mr. Barnard wrote to then Attorney General Thornburgh asking him to investigate the possibility of criminal culpability relating to the Commerce Department's provision of false information to the Congress. To date, the Justice Department's probe has not returned any indictments. It is interesting to note that one of the Justice Department's top lawyers is also a member of the Rostow gang.

The Rostow gang process operates as a sort of Maginot Line. If congressional investigations pass the first barrier, they soon run up against the next. Under this strategy, the process of obtaining documents to investigate United States-Iraq policy is a painstaking, tedious, drawn-out process that ensures many months will pass before a congressional committee obtains documents needed to conduct Iraq-related investigations.

The mere fact that the White House established and directs a group to regulate congressional investigations of Iraq policy raises questions about the motives of the White House.

Some important questions that need to be asked are: What do congressional investigations of the preinvasion Iraq policy have to do with designing and carrying out the President's national security strategies? With the world changing by the minute and our national security strategies becoming outdated daily, why would the NSC devote scarce staff time to regulating congressional investigations, or at least attempting to and so far succeeding?

Since when did it become the responsibility of the National Security Council staff to involve itself in congressional investigations?

Well, someone like me would want to know. We asked that question, and we know what has been happening for many years. It goes back many years, and I had knowledge of a lot of things that at the time we found hard to believe.

The only other example that comes to mind is the Iran-Contra investigation.

Are the lawyers of the various agencies so incompetent that they need guidance on answering congressional requests for information? On the contrary, executive branch agencies

process hundreds of congressional requests for information each year. The lawyers at these agencies are most competent, highly motivated people who do not need, nor usually receive, guidance from the White House in complying with these requests.

Given Mr. Rostow's close proximity to the coverup of the Iran-Contra scandal and the unique functions of the Rostow gang, it is not outside the realm of possibility that the White House is hiding something about its Iraq policy.

It used to be that coverup were sort of ad hoc events, a made scramble to provide damage control for the moment. The Rostow gang advances the notice that coverup mechanisms have become an integral cog in the machinery of this administration.

Officials of this administration have publicly stated that they would not use food as a political weapon, for example, and in testimony before the Congress these same officials often stated that the United States does not single out farm exports as a tool of foreign policy. In the case of Iraq, this administration violated both of these policies, and in the process they repeatedly mislead the Congress and thereby the American people.

The U.S. Department of Agriculture [USDA] offers a variety of programs designed to assist U.S. farmers to sell their products overseas. The biggest of these programs is the Commodity Credit Corporation's Export Credit Program. This was also the main United States program utilized by Iraq.

The goal of the CCC Program is to assist U.S. farmers to sell their agricultural products abroad by granting cash-strapped nations credit to purchase U.S. agricultural products. The CCC is required by regulation to allocate its credit on the basis of a foreign country's needs, its market potential, and, above all, the likelihood that those guarantees or loans will be repaid.

In the case of Iraq, those purely commercial conditions were relegated to secondary status. Achieving foreign policy objectives became and remained the prime goal of the CCC programs for Iraq.

I have shown in previous floor statements that from the beginning of the United States-Iraq relationship in 1982 until the Iraqi invasion of Kuwait, the CCC Program was the cornerstone of United States-Iraq relations. The CCC Program financed the sale of $365 million in U.S. agricultural products in 1983. That was the year that President Reagan took Iraq off the list of terrorist nations and opened the sluice gates for all of this interchange, and so forth, and by 1988 it had reached over $1 billion annually, all guaranteed by taxpayers, and the taxpayers have been left with a bag of over $2.5 billion just on these Iraq letters of credit financed through the CCC Guarantee Program.

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The CCC Program was by far the largest U.S. Government program became the two nations. With the advent of the BNL scandal, that is, the Italian bank, the Banca Nazionale del Lavoro, which, incidentally, all these banks are government-owned, and all of these transactions are by the central bank of Iraq, for whatever that means. Of course, our regulators, the Federal Reserve Board, which is supposed to have prime jurisdiction says, `Well, of course, our reciprocity means we can't get behind these accounts of a central bank of another country.'

But what about these other banks that are also owned? They may not be the central bank, but they are owned by that government. And how can the policies of our Government not be frustrated, on one hand expressed through the State Department and what not, and, on the other hand, canceled out by the banking arrangements?

As I have said, at the bottom of everything is financing. Banking. Money. As they say in Spanish, don denaro poderoso caballero, or, Mr. Money Bags, a mighty powerful individual indeed.

The BNL investigation uncovered the fact that top Iraqi Government officials were involved in this scheme.

Well, of course. We do not understand. It is not like our setup, any more than the setup of the central bank in these other nations is like ours, or the screening and the oversight and the regulating of their banking functions, both domestic as well as foreign, are comparable to our country.

Even the Europeans, German, French, we are not

talking about the same thing. That does not seem to have dawned on our leaders in our country even now.

It also brought to light the abuses of the CCC Program toward Iraq. On top of the BNL scandal, Iraq's already precarious financial position took a turn for the worse in 1989, as it began to default on its loans to other creditor nations.

As a result of these factors, the Treasury Department and the Office of Management and Budget began to have serious doubts about extending CCC credits to Iraq. Pursuing friendships with Saddam Hussein, above all else, the State Department was not daunted by Iraq's poor financial condition or the pessimistic outlook of its sister agencies.

Based on purely foreign policy grounds, the State Department pressed the USDA, the Department of Agriculture, to give Iraq $1 billion in CCC credits for fiscal year 1990.

The invasion of Kuwait happened on August 2, 1990. This was despite the USDA's contention that the CCC Program should be held under $800 million.

Now, what I am not mentioning, but I have in the past, and maybe I should not regurgitate that, but I think I ought to remind my Members that these credits through the BNL were leveraged and led to the purchase of high technology from American corporations, such as the giant gun that was in the process of being developed, whose originator was assassinated in Belgium at the height of all this. Also chemical weapons and ingredients for chemical weapons.

They were all leveraged through these licensing credits through not only BNL, but BNL acts as a bank. It also acts as a syndicator.

What do we mean by syndicator? That is a fancy word. It means they do not do it alone. They bring in other banks. And they brought a host of not only American, but foreign banks, into these transactions.

Based on purely foreign policy grounds, the State Department pressed the United States Department of Agriculture to give that credit to Iraq. Iraq was aware that a CCC Program was in jeopardy. In a meeting in October 1989 between Secretary of State Baker and Iraqi Foreign Minister Aziz, on October 6, 1989, Mr. Aziz was paraphrased as saying:

Food was a particularly explosive area because the government must feed its people. He [Aziz] said the Iraqi delegation was very concerned that failure to agree to the full [$1 billion] program now would force Iraq to search immediately for alternative suppliers and such suppliers were not available. U.S. actions will sour relations, he concluded.

After an intense lobbying effort, in November 1989 the State Department finally won approval for a $1 billion fiscal year 1990 CCC Program for Iraq. The other agencies did prevail in getting the program split into two $500 million installments. Under that approach the second $500 million could be withheld if additional problems were uncovered that warranted suspension of the program. Additional problems did arise.

As 1990 unfolded Iraq became increasingly belligerent toward the United States. As that belligerence grew, the State Department and NSC looked for leverage that could be used to modify Iraq's actions. They decided that the leverage would be the release of the second $500 million installment of CCC credit.

The United States Ambassador to Iraq, April Glaspie counseled against using food as a device to modify the actions of Iraq. In a May 18, 1990 cable to the State Department and the NSC, Ambassador Glaspie stated:

My own thinking is that unless Agriculture has uncovered a legal hornets nest, we will want to proceed with the second tranche of credits. It remains unclear why we would want to use food as a weapon.

Later that month the NSC called a meeting to discuss potential strategies for dealing with Iraq. In preparation for that meeting the State Department formulated a list of policy options that could potentially be used as a tool to modify Iraq's actions. Regarding the CCC Program the paper states:

CCC Program: This is the largest program we currently have with Iraq. All the sanctions legislation on the Hill, aside from Inouye-Kasten, exempts CCC. PRO: Since Iraq's record of repayment on CCC-guaranteed loans is good and USDA's review will probably give Iraq a fairly clean bill of health, suspension of CCC at this point would be a strong political statement. CON: It would violate our policy against using food as a political weapon and hit some U.S. agricultural exporters hard. It might also lead Iraq to default on CCC-insured loans. Other countries would sell these commodities to Iraq.

Now, have we learned anything? No; not at all. Even as I am speaking now, how many of my colleagues know that the United States, this administration, has entered into a 10-year treaty with Kuwait? Ten years for defense. How many know the tremendous amount of money that the Import-Export Bank has released for Kuwait? How many Members realize that at this time our home builders, those in areas in which masonry is not the big ingredient, but lumber, are finding that the cost of lumber is going up because it is being shipped to Kuwait? But under what conditions? Export-Import Bank guarantees.

So it looks like we have learned nothing, or at least our executive branch has not, or does not want to.

At the conclusion of the meeting it was decided that a strong message would be sent to Iraq--the second $500 million installment was not released. This too little, too late effort to get tough on Saddam Hussein was a violation of the Bush administration's own policy against using food as a political weapon.

The State Department, arguing against suspension, feared that suspending the CCC Program would cause Iraq to default on all its debts to the United States. The State Department was right on that account but that issue became moot when less than 3 months after the meeting Iraq invaded Kuwait and defaulted on its $2 billion in CCC debts.

The committee has many more documents showing that the administration used the CCC Program for Iraq as a foreign policy tool in an attempt to improve relations between our two nations. What is troubling is that the Bush administration repeatedly misled the Congress and the American public about how it was using the CCC Program. It did this to circumvent prudent controls that would have limited the amount of credit that would have been made available to Iraq. That deception has left the United States taxpayer holding a much inflated tab for Iraq's default.

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Former Under Secretary of State for Near East and South Asia [NESA], John Kelly, was one of the chief lieutenants assigned to carrying out the United States policy toward Iraq. The committee has numerous documents written by Mr. Kelly showing that the State Department knowingly used the CCC Program as a foreign policy tool in order to achieve President Bush's decree to have close and friendly relations with Iraq.

To illustrate that point, when the BNL scandal threatened to cut off the CCC Program for Iraq, Mr. Kelly wrote in a February 1990 memo:

Saddam Hussein's recent attacks on the U.S. underline the fragility of our relationship with Iraq. CCC is a key component of the relationship and failure to approve the second ($500 million) tranche will feed Saddam's paranoia and accelerate his swing against us. We need to move quickly to repair the damage to the U.S.-Iraqi relationship by getting this critical program back on track.

Part of Mr. Kelley's responsibility was to testify before Congress. While Mr. Kelly recognized and used the CCC's agricultural export promotion program as a tool of diplomacy, on several occasions he deliberately misled the Congress and the American public about the use of the program.

During hearings on Iraq on April 26, 1990, before the House Foreign Affairs Committee and on June 15, 1990, before the Senate Foreign Relations Committee Mr. Kelly stated:

Regarding our agricultural programs, U.S. policy in both this administration and the previous one has been not to single out farm exports as a tool of foreign policy.

Not surprisingly, Mr. Kelly's memos never mentioned protecting the integrity of the CCC Program or protecting the American taxpayer from Iraqi default. Mr. Kelly was not the only Bush administration official that misled the Congress and American public about the United States policy toward Iraq.

USDA KNEW CCC PROGRAM FOR IRAQ WAS PRIMARILY A FOREIGN POLICY TOOL

I will now show how several USDA officials, including the former Secretary, repeatedly misled the Congress and the public about the foreign policy nature of the CCC Program for Iraq. USDA repeatedly denied before Congress that the CCC Program for Iraq was subject to foreign policy pressures and it also indicated that the

CCC Program for Iraq was not mainly foreign policy based. Concrete evidence gathered by the committee contradict both those assertions.

The USDA was, in fact, well aware that the CCC Program for Iraq was foreign policy based. To illustrate that point consider a comment from a 1989 Agriculture Department memo related to the proposed $1 billion fiscal year 1990 CCC Program for Iraq. The memo states:

*** this program cannot be seen by the Iraqi side outside the context of the overall U.S.-Iraqi political relationship. The U.S. relationship with the most powerful of Arab states, both militarily and in terms of its oil reserves, has been carefully nurtured during the years of the Iran-Iraq war and more particularly, during the 10 months since the cease-fire. The CCC program, as the Ambassador's personal cables have emphasized, played a key role in this approach. The Ambassador's cables have stressed the threats to the overall political relationship that a cutoff in the (CCC) program would pose. More widely, the cutoff runs the risk of interpretation by the Arab countries collectively as a further signal of their second class treatment in U.S. foreign policy.

Does that sound like a statement from an agency that does not understand the foreign policy nature of the CCC Program for Iraq?

Despite knowing that the CCC Program for Iraq was being inflated to achieve foreign policy objectives, in testimony before the House Banking Committee in October 1990, the CCC's Paul Dickerson stated:

It (the CCC program for Iraq) was a market driven agriculture-related program without reference to other issues.

The USDA attempted more than once to keep the true nature of the CCC Program from public scrutiny. In an April 26, 1990, Treasury Department memo describing a meeting between USDA, State, and Treasury, the USDA is paraphrased as stating:

The USDA official said USDA is concerned that foreign policy considerations may cause curtailment of the (CCC) program, and is uncomfortable emphasizing foreign policy as the public rationale for making available the first tranche of the fiscal year 1990 Iraq CCC guarantees.

The USDA was fully aware of the commercial rationale for the CCC Program for Iraq and the conflicting reality caused quite a bit of worry among the program's managers. In preparation for the May 1990 NSC meeting that I mentioned earlier, the USDA sent a wishful background memo to Mr. Brent Scowcroft which stated:

*** it cannot be overemphasized that any constraint on CCC credit guarantees must not be based on a foreign policy rationale.

As we know, in order to send a strong political signal to Saddam Hussein, the program was suspended at that meeting.

USDA DENIES INTENSE PRESSURE

In my floor statement of March 2, I showed that the pressure on the USDA to approve the CCC Program for Iraq was intense. It was so intense that in late 1989, both Secretary of State James Baker and Deputy Secretary of State, Lawrence Eagleburger put the full weight of their offices behind winning approval for the CCC Program for Iraq. They lobbied the USDA and other agencies and neither minced words--they wanted the CCC Program for Iraq approved for foreign policy purposes.

During the period surrounding the 1989 debate on whether or not the CCC Program for Iraq should be approved, the USDA still strongly supported the program--albeit at a lower level than the State Department. Since Iraq had become a large market for United States agricultural products, the USDA feared that a sudden termination of the program would place too much of a burden on United States farmers.

As 1990 unfolded the USDA began to seriously doubt the wisdom of releasing the second $500 million installment of CCC credits to Iraq. The State Department detected the USDA's growing apprehension and it exerted considerable pressure on the USDA to win approval for the release of the second $500 million installment for Iraq.

The State Department's position is illustrated in a January 4, 1990, informational memo which states:

*** USDA may still be reluctant to proceed with the second tranche. CCC has been criticized heavily for mismanagement in recent months and may not want to risk pushing the second tranche at this time. We want to move ahead with the second tranche this month, as the Iraqis have requested. If it appears USDA is holding back, we may want to force the issue by bringing it before the NAC Deputies (Committee).

The State Department's position is further illustrated in a February 1990 memo to the Treasury Department calling for a NAC meeting to discuss the release of the second tranche. In the memo Mr. Kelly writes:

USDA's present delay in releasing the second tranche damages the interests of U.S. producers that sell to Iraq as well as our political relationship with an important country (Iraq). I therefore request that you (Treasury Department) convene a meeting of the NAC deputies as soon as possible so that I can make State's case for immediate action.

A third example showing that the USDA was under intense pressure to approve the CCC Program is contained in a May 25, 1990, Treasury Department memo summarizing a meeting held between the USDA, Treasury, and State Department. The memo states:

(The) meeting has been initiated by the NSC staff because they want to prevent the CCC program from being canceled as is would exacerbate the already strained foreign policy relations with Iraq. Agriculture had planned to put out a press release on May 21, 1990 that said the program was being suspended until the investigation into improprieties in the program were completed. The NSC prevailed on Agriculture to say only that their investigation showed the improprieties may have occurred and remained silent on the suspension. In fact there is a suspension in effect. * * *

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Even though the USDA was under intense pressure from the State Department, on several occasions USDA officials deliberately misled Senator Patrick Leahy, the chairman of the Senate Agriculture Committee about those pressures.

In February 1990 Senator Leahy took opportunity of hearings on the 1990 farm bill to question the USDA's Richard Crowder about allegations that the USDA was being pressured to approve the CCC Program based on foreign policy grounds. During the hearing Senator Leahy stated:

I assume you are getting some pressure, either from the State Department or elsewhere, within the administration to loan money to Iraq. Or is it just an internal decision made simply by the Department of Agriculture?

Mr. Crowder responded:

We (USDA) are not getting undue pressure from anyone on either side, either for Iraq or anyone else at this time. If we did not agree with it we would not recommend it. If we thought it was appropriate, we would recommend it.

The Secretary of Agriculture even got into the act. On February 12, 1990, Senator Leahy wrote to then Secretary of Agriculture, Clayton Yeutter, asking about the BNL scandal and the fiscal year 1990 $1 billion CCC Program for Iraq. In the letter, Senator Leahy wrote:

I am also disturbed by rumors that foreign policy pressures have encouraged the Department to give Iraq special treatment
in this case.'

On February 20, 1990, Secretary Yeutter answered Senator Leahy and in letter he states:

You mentioned that there were `rumors' that foreign policy pressures have encouraged the Department to give Iraq special treatment in this case. To the contrary, the extension of CCC guarantees in connection with sales to Iraq have recently been subject to special scrutiny because of the BNL investigation.

It is interesting to note that an earlier draft of Secretary Yeutter's reply was much more specific and misleading. The draft letter contained a flat denial, as opposed to the descriptive version that was actually sent. The draft letter states:

You mentioned that there were `rumors' that foreign policy pressures have encouraged the Department to give Iraq special treatment in this case. I can assure you that there is no basis to this rumor.

The State Department directly intervened at least twice in USDA's operation of the CCC Program. First it raised the amount of the fiscal year 1990 CCC Program for Iraq from the USDA recommended amount of $800 million to $1 billion. Second, the State Department would not permit the USDA to suspend the CCC Program for Iraq in April 1990. The State Department sought to turn the program on and off for policy reasons, and nothing else.

Despite these and other pressures the USDA continued to misled the Congress and the American public by insisting that the State Department was not applying undue pressure on the USDA. Given that high-level officials of the USDA were willing to mislead the Congress and public about the use of the CCC Program, one must be concerned about the integrity of the entire CCC Program.

How much of it is involved now in our lumber producers, lumber going to Kuwait, making our potential home buyers, who can afford one, pay a much higher price even now with so-called deflation?

One must be concerned. The CCC Program for Iraq is a prime example of how the State Department and the NSC use United States credit programs as a back-door means of financing your foreign policy objectives, often at the expense of the United States taxpayer, if not almost 100 percent. Because the administration strongly denies that these programs are used in this manner there is a decided lack of accountability over such use of the programs.

In 1989 and 1990 the State Department used the CCC Program for Iraq as a political weapon in a failed attempt to modify the actions of Saddam Hussein. That dubious effort cost the U.S. taxpayer, in one instance, as I said before, not necessarily CCC, $500 million, $500 million. With less than that amount we could target the needed improvements we have in the sorely reduced housing stock for the very poor, known as public housing.

The State Department clearly does not hesitate to misuse commercial export programs nor to lie about its actions.

Mr. Speaker, I include here the document and the records on the basis of which I have issued this report to my colleagues.

National Security Council,
Washington, DC, April 8, 1991.
Memorandum for: Jeanne S. Archibald, Treasury; C. Boyden Gray, White House; Fred Green; Michael Luttig, Justice; Terrence O'Donnell, DOD; Alan Raul, USDA; Elizabeth Rindskopf; Edwin Williamson, State; Wendell Willkie, Commerce.
Subject: Meeting on Congressional Requests for Information and Documents.

First of all, I apologize to Treasury and Agriculture for not inviting them to the meeting today on responding to congressional requests for information and documents pertaining to U.S.-Iraq policy prior to August 2, 1990. At the meeting, it became apparent that these departments should have been present. I shall schedule a meeting for tomorrow on requests pertaining to the BNL/CCC matters to which Agriculture and Treasury will be invited.

After reviewing the requests thus far received for information, today's meeting concluded that:

Department General Counsels should review and inventory all requests to determine which, if any, raise issues of executive privilege (deliberative process, foreign relations, national security, etc.);

Alternatives to providing documents should be explored (e.g., briefings);

When access to documents may be recommended, such recommendation should be circulated to this group for clearance;

A recommendation to provide access should be restricted to members only subject to these conditions: no document may be retained; notes may be taken but should be marked for classification by the department or agency in question. (FYI: our legislative affairs office recommends against insisting that members come to departments to read documents.); and

In any event, departments and agencies should seek guidance from this group in cases of doubt.

I hope you agree that this summary fairly represents where we came out.
NICHOLAS ROSTOW,

Special Assistant to the
President and Legal Adviser.

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U.S. Department of Agriculture,

Office of the General Counsel,
Washington, DC, April 17, 1991.

Memorandum for the Secretary


From: Alan Charles Raul, General Counsel.
Subject: Iraq-Related Document Requests; Response to Congressman Rose.

ISSUE

On April 15, Gene Bailey and I attended a meeting called by the NSC to discuss the Administration's response to Congressional requests for Iraq-related documents. USDA has received document requests from Congressman Gonzalez, Chairman of the House Banking Committee, and from Congressman Rose of the House Agriculture Committee.

Congressman Rose wrote to you on April 12, 1991 (copy attached), expressing his request for documents in rather forceful terms. A proposed reply for your signature is attached.

DISCUSSION

1. Background. The NSC's legal adviser and director of legislative affairs called an inter-agency meeting to discuss the Administration's response to numerous requests for Iraq-related documents. Boyden Gray attended the meeting, as did the Assistant Attorney General for the Office of Legal Counsel and the legal and congressional officers for State, Treasury, Commerce, and Energy Departments as well as the CIA, NSA and Joint Chiefs of Staff. Each agency reported on document requests it had received. The House Banking Committee, House Agriculture Committee, House Ways and Means Committee, General Accounting Office, perhaps the Foreign Relations Committees, as well as other committees, are requesting Iraq-related materials.

The Treasury Department reported that it had permitted Hill staff to review the National Advisory Council minutes regarding inter-agency consideration of the Iraq GSM request. The NAC minutes were reviewed in the offices of the Treasury Department; the Committee staff was not provided with any copies of the NAC minutes. Congressional staff members were not even permitted to take notes on any classified minutes.

2. Deliberative Materials. The Justice Department emphasized the need to determine which documents contained information that could be central to the Presidency, such as national security, diplomatic and other deliberative matters. The Assistant Attorney General also suggested that minority as well as majority staff members be included in whatever document review is allowed. He further suggested that, if appropriate, agencies should consider entering into confidentiality agreements with the Congressional committees or editing out the deliberate or advisory portions of potentially privileged documents.

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3. Coordination and Review. The meeting concluded with NSC suggesting that the coordinating process would continue to be available so that agencies do not pursue inconsistent approaches. It was also noted that the objective is to cooperate with Congress while also ensuring that appropriate protections are accorded to deliberative materials. Also, the inter-agency nature of the subject should be recongized--therefore, agencies should not act unilaterally. I particular, an agency should not disclose documents in its files that were originated by another agency without advance consultation.

Finally, it was agreed that materials should be reviewed before being provided to the Congressional committees and that each agency should maintain a list or copies of the documents provided.

4. Suggested Guidelines. I proposed the following procedures and guidelines in response to these document requests within USDA:

1. Requests should be received in writing.

2. Party receiving request should forward copies to: a. Blumenthal/O'connor (Cage); b. Raul/Brosch (OGC); c. Crowder/Acker/Hovemale (LACP/FAS); D. Bailey (OCR); e. Snead (OIG).

3. OGC will review each request and provide advice.

4. Potentially responsive files and/or documents will be reviewed or evaluated by OGC.

5. To the extent requested and appropriate (within OGC advice), access to files may be provided.

6. Relevant agency will make copies of potentially responsive materials and provide to OGC.

7. Agency or OGC (to be decided after consultation) will provide copies to Committee with appropriate cover letter drafted by OGC.

SUMMARY

The NSC is providing coordination for the Administration's response to Congressional document requests for Iraq-related materials. The process is intended to be a cooperative one; it also recognizes the Executive Branch's appropriate confidentiality interests. Many Congressional committees are investigation the subject, including the House Banking Committee and House Agriculture Committee. These two committees have submitted document requests to USDA.

In connection with the request from the House Agriculture Committee, a proposed response to Congressman Rose's April 12 letter to you is attached.

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DEPARTMENT OF COMMERCE, THE UNDER SECRETARY FOR EXPORT ADMINISTRATION,
Washington, DC, February 26, 1991.
Memorandum for: Wendell Willkie, General Counsel.
From: Dennis Kloske.
Subject: Iraq Printout.

At your request, I have asked the Office of Export Licensing staff to prepare a report on the preparation of the printout for Chairman Barnard. A copy of this report titled `Iraq Data Base Assessment' is attached, along with Qs & As and a case-by-case summary of any corrections made to the printout. I believe this fully responds to your memorandum to me of February 8. The first printout provided to the Committee is a summary reference document which is responsive to the Chairman's request concerning the history of exports to Iraq. The document also reflects Fifth Floor and White House guidance not to provide information that was not directly responsive to the Chairman's request. Please not that to date, four printouts have been provided to the Committee--the first two by ECCNs, and the other two by end-users.

I have also been informed that the list of four suspended cases to Iraq was not supplied to the Committee, although Mr. Jacobs, Barnard's Chief of Staff, was told about it during one of the briefing sessions. I have given instructions that the list be given to the Committee.

I would be happy to brief you on the report in greater detail.

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Iraq Data Base Assessment

Information on export license applications to Iraq is contained in the Export Control Automated Support System (ECASS) date base. That data base contains more than 1.5 million records dating back to 1980. There are more than 400 different computer programs that can be used to access the data base to obtain different information.

Records dating back to 1980 are very sketchy and cover little more than the date of receipt and final action. In the mid-1980s, the data base improved greatly but still contained many inaccuracies as data was imputed by key punch operators. In 1988, the data base accuracy increased once again as application information was entered either electronically from the exporter or by scanning applications with Optical Character Readers.

The actual data base can only be modified by the Director of the Office of Information Resources Management (OIRM) or by his Deputy. No one in the licensing office nor any senior management official has the capability to access the computer and modify any existing data.

Congressman Barnard requested on September 28, 1990, a list of all export licenses to Iraq from 1985 to August 2, 1990. He asked for:

Disposition of each license application,

Requester of each license application,

Product to be exported,

Approximate value of sale,

End-Use,

End-User, and

Export Commodity Control Number (ECCN).

The Congressman stated in his request that he understood that `the requested information is on a computer date base and is readily accessible.'

Accordingly, we decided to respond to the Congressman's request by preparing a printout generated by the ECASS data base. For the disposition of the export license application, we asked the computer to list whether the case was approved, rejected, returned without action, or embargoed. For the requester, we provided the name of the applicant--the exporter.

For the product to be exported, we used the description associated with the Export Control Commodity Number (ECCN) contained in the data base. We though this would be more helpful to the Congressman rather than printing out the lengthy listing of technical specification and model numbers. Thus, for example, a product description read, `Electronic Computer and Equipment' rather than the specific model and technical details of the computer in the application.

For the value, we used the value submitted with the application. For the end-user, we asked for the ultimate consignee. For the end-use, we asked the computer to printout the end-use as listed in the data base. For the ECCN, we provided the ECCN.

In reviewing the printouts before their submission to the Congressman, we compared each entry for accuracy with information that was available on microfiche records. In 65 instances out of the 1,126 licenses processed for Iraq during this period, we found that the data base did not correctly reflect the disposition of the application. No surprisingly, most of these instances were for applications before 1988. Based on concrete and specific documentation available on microfiche, we corrected the data base by including the additional information. These corrections are detailed case-by-case on the attachment. Generally, they included:

Additional information not reflected in the data base,

Updating other agency recommendations or adding positions where the most recent recommendations had not been entered into the data base, and

More detailed commodity or end-use descriptions were the information in the data base was insufficient or misleading.

All of the recommended corrections were forwarded to OIRM for entry into the date base. Again, no corrections were made by any licensing personnel or by any senior managers in the organization.

With respect to the data provided to the Congressman and the position of the other agencies, these reports were cleared with those agencies. All advisory agencies--Defense, State, Energy and the Subgroup on Nuclear Export Controls (SNEC)--have reviewed these reports and concur in the accuracy of Commerce's information and, with one exception noted below, in the manner which it appeared in the data base.

The one exception concerned the State Department, which requested a modification to the data presented to the Congressman. While Commerce's data base showed that several of the applications which had been referred to State had received a recommendation of approval, the State Department wished in those few cases to have the recommendation changed to one reflecting that State had raised no foreign policy objections. State contended that in these few cases there was not formal requirement to refer the application to State, and, thus, no formal opinion of approval from State was required. Commerce refused to alter the data base but did agree to footnote those few instances with State's preferred description of its position.

With the exception of the corrections noted above and in the attached case-by-case description, no changes were made to the data base. The printouts provided to the Congressman factually represent what is in the ECASS data base and what has always been in the ECASS data base. The ECASS system is one of exceptional security and was designed with internal safeguards and audit trails to preclude alteration.

In sum, the printout provided to Mr. Barnard is a summary reference document that is responsive to his September 28, 1990, request. The printout is also consistent with Fifth Floor guidance and requests from both State and the NSC that no additional information be provided that does not directly address the Committee's request.

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DEPARTMENT OF COMMERCE,

The Inspector General,
Washington, DC, June 4, 1991.
Memorandum for: Robert A. Mosbacher, Secretary.
From: Frank DeGeorge, Inspector General.
Subject: Report on Iraqi Export License Information, Bureau of Export Administration.

[Page: H1281]

At the request of the Department's General Counsel, we reviewed the releases of Iraqi export license information to the Chairman of the Subcommittee on Commerce, Consumer, and Monetary Affairs, House Committee on Government Operations. Our review disclosed no evidence that Bureau of Export Administration personnel deleted entire export license records before they submitted the information requested by the Chairman. However, we did confirm an initial report by the former Under Secretary for Export Administration that a small percentage of certain data of the Iraqi export licenses processed were changed in submissions to the Hill.

Bureau personnel, including the former Under Secretary, stated that while preparing printouts for submission to the Chairman, changes were made to selected data on 66 approved export licenses for sales to Iraq. Our review disclosed changes to data on two additional licenses concerning trucks. Bureau personnel also changed permanent records on the Export Control Automated Support System database, compromising the integrity of the Iraqi license records. Neither the changes to the data provided to the Chairman nor the changes to the system database were adequately supported. Our review disclosed that the former Under Secretary concurred with all changes to the data sent to the Chairman, but was unaware of any system database changes. With the exception of changes to five truck licenses to remove a reference to their potential military use, the changes were inconsequential and eliminated apparent inconsistencies in the license information.

This report contains recommendations to ensure the integrity of the export licensing data and any such data submitted to the Congress in the future. These recommendations have been discussed and agreed to by Bureau officials; we are therefore issuing this report in final form. Department Administrative Order 213-5 requires operating units to submit an audit report action plan, including a timetable for implementation of the recommendations, within 90 days of the date of the audit report. Accordingly, we request that the acting Under Secretary of the Bureau of Export Administration be directed to submit such a plan. We are providing a copy of this report to the acting Under Secretary and to the General Counsel.

INTRODUCTION

Beginning in September 1990, Congressman Doug Barnard, Jr., Chairman of the Subcommittee on Commerce, Consumer, and Monetary Affairs, House Committee on Government Operations, sent several requests to the former Under Secretary for the Bureau of Export Administration for lists of export license information on Iraq from 1985 through 1990. The former Under Secretary responded with computer printouts on October 10, October 24, and December 12, 1990.

The October 10 printouts did not show whether the licenses were referred to other departments under applicable licensing regulations. The regulations require BXA officials to submit certain license applications to the Departments of State, Energy, and Defense. The October 24 printout showed information on the referral to other agencies, but it did not show the other departments' responses or recommendations. The December 12 printouts showed all referral information, including the other department's recommendations.

On February 8, 1991, the Department's General Counsel asked the former Under Secretary to provide a report addressing whether (1) the printouts were misleading, (2) certain end users of the licensed commodities were deleted or changed, and (3) the characterizations of the licensing information had been materially changed from those originally in the system database. This information was requested because of media-reported allegations that export license information and records were deleted from the Bureau's files. The former Under Secretary provided the report on February 26, 1991, acknowledging that changes were made to the information given to the Chairman.

On March 11, following continued media reports that Iraqi export license information was deleted from the Bureau's files, the General Counsel asked the Office of Inspector General to review this matter.

PURPOSE AND SCOPE OF REVIEW

The purpose of our review was to determine (1) if any changes were made to the information prior to submission to the Chairman, (2) if any changes were made to the export control automated system database records, and (3) the accuracy and completeness of notations indicating the positions of other departments involved in reviewing licenses for exports to Iraq.

We interviewed Commerce officials involved in preparing the responses to the Chairman, including the former Under Secretary,
and officials from the Defense, State, and Energy Departments. We reviewed the Bureau's support for the acknowledged changes to the printouts furnished the Chairman, and determined whether Bureau personnel had also changed other license information in the export license system database. Bureau officials did not maintain any copies of the printouts provided to the Chairman, so we obtained Iraqi license information stored on magnetic tape as of May 22, 1990, and provided last August by the Bureau to another government agency. The tape did not include archived export license data for fiscal years 1985 and 1986. We also obtained a copy of the printouts from the congressional committee that received the information. We compared the copies of the printouts submitted to the Chairman with the information provided on the May 22, 1990, computer tape. We also compared the data shown on the December 12 printout with the data from the May 22 magnetic tape to determine the reliability of the Iraqi information in the database--that is, whether export license records were deleted from the database.

We did not examine the internal controls over the input and maintenance of data in the export licensing system. Instead, we have initiated a separate review over these controls and will provided you with a copy of that report when that review is completed.

This review was performed at Bureau headquarters and at the Departments of Defense, State, and Energy in Washington, D.C. Except as noted above, the review was conducted in accordance with generally accepted government auditing standards and was performed under the authority of the Inspector General Act of 1978, as amended, and Department Organization Order 10-13, dated May 22, 1980, as amended.

BUREAU PERSONNEL CHANGED INFORMATION ON 68 LICENSES

In his report to the General Counsel, the former Under Secretary stated that Bureau personnel changed licensing data on 65 of the 1,126 licenses (later amended to 1,130) processed for Iraq from 1985 through August 2, 1990. Bureau personnel acknowledged one additional license data change as we began the audit. During our review, we identified two additional license data changes that were not previously acknowledged, bringing the total to 68.

The license data changes were as follows:

(1) Descriptions of trucks were changed on five license records to eliminate a reference to a design for military use.

(2) Notations were removed on 19 license records that had indicated referrals of licenses to another agency.

(3) Stated positions of other agencies that review or approve licenses were changed on 39 license records.

(4) End use statements were changed on five licenses. On four licenses for equipment used in a `magnetic media factory,' the descriptions of end uses were expanded. The expansion added the phrase `to [manufacture] video tapes for consumer electronics.' On one license, the exporter had inserted a comment that, `According to our information the end user is involved in military matters' in the end use field. Bureau personnel deleted the comment.

Changes to `Military Truck' Licenses Unjustified

The export regulations provide an export control commodity number and general description for each commodity to be exported. Bureau personnel changed the commodity description for trucks from `vehicles designed for military use' to `commercial utility cargo trucks' or `vehicles.' The former term is consistent with the terms used in the export administration regulations as the general description of the trucks. We found no changes to general descriptions of other licensed commodities that made them inconsistent with the regulations.

A Bureau official told us the commodity descriptions were changed to clarify that the Bureau does not license the sale of military trucks. The official also said that the description changes were justified by a State Department letter to an exporter in 1983. The letter indicated that the exporter's trucks, which were intended for sale to Iraq, were classified as `commercial utility cargo truck(s).'

We disagree with both reasons for changing the commodity descriptions. The export administration regulations allow the Bureau to improve licenses for the sale of military trucks that are not on the U.S. Munitions List. Such vehicles are primarily transport vehicles designed for noncombat military purposes. Additionally, when we discussed the contents of the 1984 letter with Department officials, they informed us that the letter provides no justification for the description changes. It merely informed the exporter that the trucks are not on the munitions list and can be licensed by the Bureau. We conclude that the changes were unjustified and misleading.

Bureau personnel changed five licenses for trucks, including the two that we found. The total value of the licensed trucks were over $1 billion, or approximately 2/3 of the total value of the approved export licenses for Iraq during the period under review. In fact, more than 97 percent of the total value of the changed licenses is accounted for by changes to the truck licenses. Although the licenses were approved, Bureau personnel informed us that no licensed trucks have been shipped.

[Page: H1282]

Justification for Deleting Computer Parts and Components Referrals Not Clear

Bureau personnel deleted 19 referral notations to other agencies; however, those actions were not clearly justified. Nine referrals to the Defense Department for computer parts and components were deleted, and ten other referrals for various other commodities were also deleted. Bureau personnel told us they deleted the notations related to the computer parts and components because the Licensing Officers' Operating Manual stipulates that parts and components licenses should not be referred to the Defense Department.

We reviewed the operating manual and found that it contained conflicting procedures as to whether licenses for computer parts and components should be referred to another agency. A dated procedure could be used to justify the referral notation deletions, but a more recent procedure required that the licenses be referred to the Defense Department for approval. Notwithstanding the position of Bureau personnel that computer parts and components need not be referred to the Defense Department, they were referred and licensing issues were settled among the appropriate agencies. Under the circumstances it would have been more appropriate to have included the referrals in the printouts and explain the resultant positions where necessary.

We did not review the entire manual to see if it contained other conflicting or confusing procedures. However, Bureau officials should perform such a review to ensure that licensing personnel have clear, unambiguous procedures to apply to each license application.

Adequate Documentation for Many Changes Not Provided by Bureau Personnel

We reviewed the 39 changes made to other agency positions to determine whether the changes were well documented and supported. Bureau personnel told us that the changes to other agency positions were `corrections' supported by export licensing regulations and files of original documents.

Our review of the documentation used to support the changes showed that 13 of the changes were based only upon the Bureau licensing officer's written notation that an agency position had changed. We also found that 31 of the 39 changes were not supported by reliable independent documentation. The licensing officers often did not base the changes on independent supporting documentation such as memoranda prepared by officials of other agencies.

Bureau personnel also did not provide adequate support for changes that removed notations indicating referral to other agencies. Additionally, each license application must include a statement on the end use of the commodity being exported. Bureau personnel did not provide adequate documentation to support the changes in the end use statements.

Bureau personnel stated that they had discussed all changes with officials of other agencies to confirm that the changes accurately reflected their positions. Bureau personnel further stated that these officials concurred with the changes.

We asked officials at the Energy, State, and Defense Departments to verify statements by Bureau personnel. The Energy Department official disagreed with three of 10 position changes. However, he did not indicate that additional action to correct the record was needed. A Defense Department official stated that approximately 30 percent of the licenses were approved `with conditions,' while the Bureau's records indicated that the licenses were simply approved. Another Defense Department official stated that he told the committee staff that he was satisfied with the presentation of the Defense Department's positions on the printout. The State Department did not disagree with the stated positions. As a result of the other agency officials' comments, we consider the changes to the positions and the deletions of the referrals to have had little effect on the Iraqi license information given to the Chairman.

We found that the other agencies did not maintain complete records of the license applications submitted for their review. Defense Department officials told us they depended upon the Bureau's files to support the changes in their positions.

PERMANENT CHANGES TO THE EXPORT CONTROL AUTOMATED SUPPORT SYSTEM WERE MADE WITHOUT ADEQUATE SUPPORT

The Bureau maintains the Export Control Automated Support System, which provides license processing and historical information on export licensing activities. It also provides the data needed to support enforcement actions for export license violations. The system contains the official license application, the application tracking information, the license, and the follow-up actions.

The system allows changes to applications before they are approved; however, once a license is issued it becomes an historical record and no changes by licensing officers are permitted. The date of final action is entered automatically by the system and cannot be changed. Changes to the database can be made only by computer personnel within the Operations Division with the specific authorization of the Director, Office of Information Resources Management.

We found that Bureau personnel forwarded a list of the previously stated changes to BXA's Office of Information Resources
Management, with a request to change the permanent licensing database. OIRM officials acknowledged that they changed the license records solely on the basis of the highlighted list and oral assurances by licensing officials that the changes were justified. They neither reviewed the documentation used to support the changes nor requested copies to maintain in case questions arose in the future.

OIRM officials should have required authorization and sufficient supporting documentation before changing permanent records in the system. Changing system data without support compromises the system's integrity and confidentiality.

RECOMMENDATIONS

We recommend that the acting Under Secretary for Export Administration take the following actions:

1. Ensure that any future changes to export license information submitted to Congress and to the Export Control Automated Support System are authorized and adequately supported with appropriate documentation.

2. Retain complete documentation of the positions of all agencies involved in processing export licenses.

3. Ensure that the system database accurately reflects all agency positions.

4. Clarify the procedures in the Licensing Officers' Operating Manual for the referral to the Defense Department of license applications for computer parts and components intended for shipment to specific countries.

5. Ensure that the Licensing Officers' Operating Manual is reviewed to eliminate other conflicting or confusing licensing procedures.

END